Monday, August 2, 2010

GDP Growth Slowed In Second Quarter According To Advanced Estimate

The advanced estimate of GDP growth in the second quarter by the Bureau of Economic Analysis projects a decrease to 2.4 percent. The BEA attributes the slowdown partly to a slowdown in private inventory investment, while government spending and personal consumption contributed to growth. See the following post from Expected Returns.

From the BEA:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, exports, personal consumption expenditures, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected an acceleration in imports and a deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.
Rapidly falling GDP figures are confirming the slowdown in organic economic activity. Increases in state and federal spending are being offset by weakening personal consumption expenditures, auto sales, and durable and nondurable goods orders.

Government Spigots Still Running

Federal government consumption expenditures and gross investment increased 9.2 percent in the second quarter, compared with an increase of 1.8 percent in the first. National defense increased 7.4 percent, compared with an increase of 0.4 percent. Nondefense increased 13.0 percent, compared with an increase of 5.0 percent. Real state and local government consumption expenditures and gross investment increased 1.3 percent, in contrast to a decrease of 3.8 percent.
In a recurring theme throughout this recession, the government is the only sector that continues to recklessly spend. Of course the unemployment rate, housing, and organic economic activity doesn't budge in response, but that's not changing our government's spend, spend, spend mindset. After all, without trillions of taxpayer dollars going directly to banks and failed insurance, auto, and mortgage servicing companies, we would have had, according to our genius leaders, 15% unemployment (or some other magical figure conjured up from their imagination).

Inventories

The change in real private inventories added 1.05 percentage points to the second-quarter change in real GDP after adding 2.64 percentage points to the first-quarter change. Private businesses increased inventories $75.7 billion in the second quarter, following an increase of $44.1 billion in the first quarter and a decrease of $36.7 billion in the fourth.
Inventories accounted for 44% of the growth in GDP in the 2nd quarter, which is a pattern that should soon reverse. It appears the upside surprises in economic activity are behind us, and that the inventory cycle has rebalanced. Now our economy will have to grow on the strength of real demand.

There really is no doubt that the economy is slowing again. Upside surprises are turning into downside surprises, and the mystical green shoots recovery is being exposed as the sham it always was.

This post has been republished from Moses Kim's blog, Expected Returns.

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